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Copyright © 2009 Pearson Addison-Wesley. All rights reserved.
Chapter 7
Urbanization and Rural-Urban Migration: Theory and Policy
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Urbanization and Development
• Economic development causes urbanization
• There is a positive correlation with economic development and urban population growth
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Urbanization Across Time and Income
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Urbanization Trend
World urban population distribution (in billions)
2000 2025World 3.2 5.1
MDCs 1.0 (31%) 1.1 (22%)
LDCs 2.2 (69%) 4.0 (78%)
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Distribution of Urban Population
Urban population shares of Asia and Africa are expected to rise at the expense of Latin America:
2000 2025
Africa 18% 20%
Latin America 22% 15%
Asia 60% 65%
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Projected Urban and Rural Population MDCs and LDCs, 1950-2030
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Most Populated Cities
• Of the 15 largest cities, 4 are in MDCs (LA, NY, Tokyo, and Osaka) and 11 are in LDCs
• By 2015, the ranking of these largest cities will change in favor of the LDCs (e.g., NY falls from no. 3 to 11)
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Mega-Cities: Cities with 10 Million+ Inhabitants
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Location of Migrant Workers
• Migrant workers move to nearby towns and large cities, and especially the capital city
• They reside in slums and shanty towns where low cost housing is available
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Urbanization
The LDCs experience rapid urban population
growth because of
• Natural increase: birth rate > death rate
• Rural-urban migration: movement of rural workers to urban areas
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Contribution of R-U Migration
• On average, about 50% of urban population growth of the LDCs is due to R-U migration
• Rapid R-U migration has resulted in the construction of slumps and shanty towns that house a large percentage of urban population
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Dualistic Economic Structure
• Formal sector: organized and regulated economic system (e.g., government agencies, banks); it generates 2/3 of GDP
• Informal sector: fragmented and unregulated economic system (e.g., street vendors, loan sharks); it generates 1/3 of GDP
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Dualistic Labor Market
• Formal labor market: skilled labor (e.g., government employees, teachers) and professionals with education and license
• Informal labor market: semi-skilled and unskilled labor (e.g., small business, street vendors)
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Urban Informal Sector
• Most rural migrants find jobs in the “informal” urban labor markets
• The “informal” urban labor force is a large component of the urban labor force
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Developing Urban Informal Sector
Advantages of investment in urban “informal” sector
• Contributes to economic growth
• Requires small capital investment
• Requires low cost of training and education
• Supplies semi-skilled labor to industry
• Uses labor-intensive technology to create jobs
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Developing Urban Informal Sector
Disadvantages of investment in the urban
“informal” sector
• Induces R-U migration
• Exerts pressure on urban infrastructure
• Adds to pollution, congestion, and crime
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Women in U-Informal Sector
• Represent the bulk of the informal sector labor supply
• Earn low wages in unstable jobs with no benefits (e.g., housekeeping)
• Run micro-enterprises (e.g., home-made foodstuffs and handicrafts)
• Engage in illegal activities (e.g., prostitution)
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Urban Unemployment
• Urban open-unemployment is in double-digits in many LDCs
• The problem is much more serious because
– Discouraged workers are excluded
– Underemployment is not measured
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Todaro’s R-U Migration Model
• Factors affecting migration decision – Expected urban income
– Probability of finding an urban job
– Cost of living in urban areas
• Decision criterion: – Migration will take place if the present value
of “expected” benefits exceed costs
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Todaro’s R-U Migration Model
Benefits from migration:
• Higher urban wage
• Enjoyment from urban entertainment
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Todaro’s R-U Migration Model
Costs of migration:
• Transportation cost
• Opportunity cost of being unemployed
• Greater living expenses
• Psychic cost of being away from home and family
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Todaro’s R-U Migration Model
Non-economic factors inducing migration:
• Distance: the farther the distance, the larger is the transportation cost
• Relatives living in urban areas helping reduce living expenses
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Todaro’s R-U Migration Model
Non-economic factors inducing migration:
• Information flow about job openings in the “informal” sector
• City lights: movie theaters, restaurants, amusement parks, etc.
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Wage Differentials & Employment
Agricultural Wage Rate Manufacturing Wage Rate
WM
W*MW*A
WA
W**A
q’
q E
M
M’
A
A’
OA LA L*A=L*M LM OM
At WM, OMLM is urban employment and OALA
is rural employment. LALM is the “migrant pool: Those who are either unemployed or engaged in low-skilled activities in informal sector
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Policies Inducing R-U Migration
• Neglect of agriculture: industrialization at the expense of agricultural development
• Urban bias development strategies: investment in urban industrial development
• Job creation in urban areas by government and manufacturing and services industries
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Policies Inducing R-U Migration
• Educational opportunities in urban areas: R-U brain drain
• Cash and in-kind subsidies to government employees and factory workers
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Policies Reducing R-U Migration
• Eradicate poverty and reduce population growth
• Promote rural and agricultural development
• Create jobs in rural areas: expand small-scale, labor-intensive industries
• Eliminate factor-price distortions and adopt “appropriate” production technologies
• Modify direct link between education and employment